The beginning of the new decade has seen a healthy rise in the value of Bitcoin and other mainstream Cryptos
2020 has started on a positive note for Bitcoin and the rest of the cryptocurrencies. While the price action in the latter half of 2019 was disappointing for the crypto bulls as bitcoin continued to make lower highs, digital assets matured as an asset class, with increased institutional adoption brought about by the launch of innovative new trading instruments. Apart from this BTC was labeled as the best investment of the decade, while posting the highest number of transactions, volume & hash rate highs.
After bottoming out around $6850 at the beginning the of year, BTC seems to have carved out a temporary base with gains of over 33% by reaching $9200 earlier. Although the prices have receded a little, the upswing is still intact as signified by the short term bullish channel. Significant resistance lies ahead around the $9500 mark — a break of this level would signal a larger medium-term correction.
Considering the price has broken above the medium-term bearish trend line, the current move looks constructive. While MT bias has flipped to neutral from bearish & ST bias turning bullish, any subsequent gains would be dependent on BTC overtaking the resistance convincingly. As is the case usually, there is a lot of speculation on what’s pushing the BTC prices higher. Let’s look at some of the strong contenders.
1. BTC Futures
CME has established itself as the leader in regulated crypto derivatives space. It launched the Bitcoin futures in December 2017 a week after CBOE launched a similar initiative. But while the latter bowed out within 15 months, CME continued to stay strong, as by August last year it announced record highs for BTC futures trading.
Recently in December, Bakkt — which launched its futures platform in Septemeber announced its regulated BTC options. The CME once again lagged with their option contract trading instrument floating on Jan. 13 of this year. Despite a later start, CME started off with a bang with an opening-day trading volume over $2.3 million, more than 5x that of its competitor Bakkt.
In anticipation of the BTC options launch, the first four trading days of 2020 saw the futures interest spike by 70% with the bitcoin price following suit. The BTC price touched $8800 on the day of the launch before correcting a little bit and making another high later. The reason for this euphoria could be attributed to the fact that the asset underlying the CME options vehicle isn’t Bitcoin itself, but Bitcoin futures.
2. Geopolitical Uncertainty
The rise in BTC could also be associated with the geopolitical hostilities in the Middle East that broke out at the beginning of the year. As some analysts believe, a risk-off move in the mainstream financial markets triggers buying in Bitcoin, which is considered as a safe haven asset in times of trouble, when compared with Equities & fiat currencies.
Some credence to this case can be seen from the BTC price action itself in Iran, which was directly involved in the situation. On the day after the attack, the P2P trading platform LocalBitcoins reported the asking price for 1 bitcoin to be around 1 billion Iranian rials or over $24,000 — a premium of almost 200%.
However, we have seen this happening in other countries like Venezuela where the national currencies are weak to have dual exchange rates — one set by the country’s central bank and the other is the actual market rate.
3. Bitcoin Halving
And finally, the upcoming Bitcoin halving event around May 2020 which would reduce the BTC mining reward into half — from the current 12.5 BTC per block to 6.25 per block. The logic behind halving is to prolong the life of the network & keeping the BTC value intact by controlling the supply of the coins.
Although we have had just two previous instances of halving in Bitcoin, they recorded massive gains a year before & after the reward split. Will it happen again as we anticipate the third halving in May 2020… time will tell, but the price movements recently & the previous history certainly agree.